New York City Pension Watch: Hey, What if We "Delay" the Contributions?
Hey, Mamdani, why don't we "delay" paying your salary for a few years, while we're at it?
To make it easy for everybody, let me link the non-paywalled coverage first.
23 Apr 2026, Spectrum News NY1: Mayor Mamdani floats delays to pension fund payments
Mayor Zohran Mamdani has called the $5.4 billion budget deficit a “generational fiscal crisis.” One idea to solve it would entail pushing off or decreasing payments to pension funds for city employees, possibly to the next generation.
“Why should my child pay for his fifth-grade teachers salary and pension benefits in 2040?” said Andrew Rein, the president of the Citizens Budget Commission.
Except you don’t understand what pension contributions now represent.
“Required” pension contributions for current service are called "normal costs”, and not paying those is like not paying the wages the people earned during that period.
Just because the cash flow promised occurs later, the innumerate think, “Oh, well, it doesn’t matter much if I don’t set aside any money now, after all, I promised. The promise is as good as paying….”
Until 20 years later, and there’s not enough money.
But let me get back to the Spectrum News/NY 1 story:
The apparent answer from the Mamdani administration — to free up tax money to help close the deficit.
A spokesman for the mayor confirmed the idea, first reported in The New York Times.
There are no details, but options are under discussion in City Hall and shared with officials in Gov. Kathy Hochul’s administration.
“Quite frankly, it would cost more in the long run and make the wrong people pay the obligation,” Rein said.
The city has been on a $60 billion pension payment plan for more than a decade with six years to go, finished in 2032. The City Council proposed a similar idea, estimated to save more than $1 billion a year.
Now, you may wonder what that’s all about. The city is being forced into contributions to the pension payment plan discipline, huh? Why? How did that come about?
First, the other coverage: [I will be returning to the NYT piece — because it mentions where the $60 billion payment plan comes from]
23 Apr 2026, NY Times: Mamdani Considers Delaying Pension Fund Payments to Ease Budget Gap
27 Apr 2026, NY Post editorial: Mamdani’s plan to delay pension payments echoes the schemes that brought NYC near bankruptcy
23 Apr 2026, Hoodline: Mamdani Floats Pension Slowdown To Plug City Budget Hole
Why is there a NYC pension gap?
I mentioned the “normal costs” above, but a lot of public pensions accrue other costs — namely, the debt of unfunded pension liabilities.
That debt is a balance sheet item, but that debt needs to be addressed, because it represents the difference between the actuarial present value of the future benefits (already earned) and the assets currently on hand (which are what happened to all those past contributions … and whatever cash flows went out of the pension funds in the interim).
A sizeable gap between the promised benefits (already earned) and the current assets can exist due to:
the contributions were too small over many years (the Chicago/Illinois way), on purpose
investment performance was well below the assumed return when actuaries developed what the contributions should be (we will see some of this below)
aspects of the employees’ experience differ from what was assumed:
salary patterns (increases in raises, overtime, etc.)
number of years of experience before retirement
whether they get disability pensions
what age they retire at
aspects of the retirees’ experience differ from what was assumed:
how long retirees survive in retirement
what sort of increases to pension benefits (COLAs) occur … sometimes, there are ad hoc increases by politicians, for political benefit
THEN, sometimes, you get retroactive pension sweeteners, and BAM, you get a huge bump up in pension liabilities in one year. (Not that that has happened in NYC. Yet.)
New York state pensions are better-funded than NYC pensions:
The funded ratio is a measure of how much of the public pension liabilities are covered by current assets (it’s a little more complicated than that, but let’s go with that simplification)… and the NY state plans are all over 90% funded, but the NYC plans (which I highlighted) are much lower… there are a variety of reasons for that.
Part of the reason is the discipline imposed upon the state pension plan participants and their contributions to the funds. They’ve never been allowed to depart too far from full-fundedness.
To make fair comparisons, let us compare like-to-like: ERS (general employees) plans. I’m picking just those to keep scope limited.
ERS plans: NYC vs NY State & Local
All the data is via the Public Plans Database.
Funded ratio history:
Contribution history:
NYC ERS:
NY State and Local ERS:
A few comments on these both:
I haven’t dug into the details of these pension systems to see what is actually being promised as benefits — are the NYC benefits “richer”? (Or not) I looked quickly at benefit documents, and some aspects (such needing to have been retired for 5 years
But I can, looking at these contribution patterns, believe that these have exactly the same promised benefits (broadly), but very different required contribution patterns, due to a couple of differences:
different approaches to funding the pensions (how does one make up for shortfalls? How rapidly do you ramp up contributions?)
different investment experiences
In particular, note the different vertical axes for the contribution rates, as a percentage of payroll.
The NY State & Local ERS contribution rates jump around a lot, but notice they don’t go up to 30% of payroll. It also stays close to fully-funded.
I notice the contribution rate doubles between two years, from 2010 to 2011, but it looks like about 7.5% to 15% of payroll.
That’s not like the NYC ERS plan ramping slowly up to about 25% of payroll just to hover at about 80% fundedness. I will note that NYC ERS is a “normal” public pension plan in that its funded ratio tracks with the national average, though its contribution rates are fairly high.
Last comparison:
Investment experience
NYC ERS
NY State and Local ERS
Now first, you may be wondering: hey! Why do these funds have different samples they’re being compared against!
Good question, and here’s your answer:
NYC ERS is a city-based fund; NY State and Local is a state-based fund
NYC ERS had $87 billion as of FY2024; NY State and Local had $226 billion
Perhaps they should be considered comparable — because about $100 billion and about $200 billion are on a similar scale.
Now, here’s the kicker: do you see the red line for each of the graphs? That’s the assumed rate of return, which is extremely important for public pension valuation (I don’t think it should be, but I will push that off for a later discussion).
If you squint, you can see there’s a little bend in that line for each of those lines, where NYC’s happened back in 2010, and NY State & Local happened over a few years, but the current one was settled in 2021.
Current assumed rates of return:
NYC: 7%
NY State and Local: 5.9%
and NY State and Local has been getting a higher rate of return… but with a lower target.
From a risk management point of view, NY State and Local is sitting pretty.
NYC is barely hitting its target on a long-term point of view.
What about that NYC pension payment plan, again?
From the NY Times coverage of this idea:
23 Apr 2026, NY Times: Mamdani Considers Delaying Pension Fund Payments to Ease Budget Gap [paragraph with emphasis has the info]
Mr. Mamdani’s team said it has yet to iron out the details. Any cost-cutting plan would most likely involve extending the deadline for the city to meet its long-term pension obligations beyond 2032, when it is scheduled to be up-to-date on its payments.
….
Similar proposals have drawn opposition from unions and fiscal watchdogs, with one leading budget expert warning they merely delay the city’s fiscal responsibility to avoid meaningful reductions in spending.
….
Any delay to pension payments would need the approval of Ms. Hochul, who declined to comment.
….
In 2013, under then-Mayor Michael R. Bloomberg and Gov. Andrew M. Cuomo, the city reformed its mandated pension payments following a drop in the assumed rate of return to 7 percent from 8 percent. That reduction meant the city had to pay more money upfront, creating a roughly $60 billion unfunded mandate. To address that, city and state leaders agreed to stretch out payments for future bills through 2032, at which point the added obligation was expected to be paid off.
….
Further delaying pension payments would significantly help Mr. Mamdani as he grapples with a $5.4 billion deficit through June 2027, which he has sought to reverse with risky and unpopular proposals, like raiding the city’s reserves and raising property taxes. He is also pushing Ms. Hochul to increase income taxes on wealthy residents, a proposal that is popular among Democratic state lawmakers but unlikely to get her backing. And he is asking her for more state aid to plug the hole as he navigates his first budget as mayor.
….
Mark Levine, the city’s comptroller, called pension amortization ‘’a prudent step.’‘
‘’But the once-in-a-generation short-term savings this generates must be used wisely,’‘ Mr. Levine added, ‘’both to support the civil servants who pay into the system and to strengthen the city’s resilience against future fiscal and economic shocks, not as a way to avoid addressing our structural budget challenges.’‘
Let me unpack.
I will link a bunch of posts I’ve done in the past about public pensions and the discount rate/assumed rate of return on assets.
For a very long time, many public pensions used 8% as the favored assumed rate of return/discount rate on their public pensions.
Even if they were making “full contributions” to their pension funds using that 8% to calculate those full contributions, they kept falling behind. Making full contributions, and their pension gaps kept growing? Huh?
Well, that is actually the big difference between NYC ERS and NY State & Local ERS. NYC ERS, before it recently shifted down to 5.9% as its assumed rate of return, had used 7% (not 8%) as its assumed rate of return.
That “conservatism” (yes, I mean that as scare quotes) in determining their contribution rates helped keep the NY State and Local ERS plan fully-funded, while NYC ERS’s funded ratio deteriorated.
Huh.
Oh, and it didn’t help that various NYC Comptrollers thought it was a good idea to play politics with NYC pension funds.
LOOKING AT YOU, MARK LEVINE.
[But not going down that rabbithole right now.]
Bottomline: “Delaying” pension contributions is borrowing from the pension funds
And the public employee unions, and especially the retirees, know this.
Perhaps some of them have been looking over at New Jersey or Rhode Island and saw what happened to COLAs (cost-of-living adjustments) in those states, and decided they didn’t want that to happen to their own pensions.
What happened in Rhode Island and New Jersey? The COLAs were cut in 2011.
FIFTEEN YEARS LATER, and the COLAs in both states are still suspended/much less than originally promised:
16 Apr 2026, Providence Journal: RI’s retirees go to the State House for battle. Their crusade? Pension COLAs.
13 Apr 2026, NJ Spotlight News: Sherrill wants full pension funding, with retiree COLAs still on hold
Let me do a simple comparison, so you can see the magnitude.
Let’s pretend the COLAs were 3% compounded annually over 15 years (these weren’t necessarily the terms, but I want to keep this simple).
Just 3% compounded over 15 years is a 56% increase. A $100 payment in 2011 would become $156 in 2026.
Suppose that you had been expecting 3%/year for 15 years, but it got frozen in 2011 — and you didn’t get $156, but $100. Yeah, you’d be angry.
But also, you can see how this gets expensive to fund rather quickly. And both Rhode Island and New Jersey grossly underfunded their pensions.
New York City is not in that situation… yet.
But borrowing from the pensions, which is what “delaying” the pension contributions, aka, under-contributing to the pensions, is. The unfunded liability would accrue and the funded ratio would decrease.
And consequences would start creeping up. This is how this sort of thing starts. It doesn’t require losing all the pension benefits… just a lot of the benefits that make them valuable, like COLAs.
Related Posts: On public pensions and rates of return
Aug 2022: One Bad Year? Comparing the Long-Term Public Pension Fund Returns Against Assumptions
June 2015: Public Pensions Primer: Funded Ratios and Comparisons
July 2020: Classic STUMP: Public Pensions Primer—The Choice of Discount Rate and Return Volatility
Sept 2015: Public Pensions Primer: Choice of Discount Rate Influences Results
Mar 2021: MoneyPalooza Monstrosity: State and Local Governments Should Pay Down Pension Debt
Dec 2016: Pension Return Assumptions and Discount Rates: An Overview
May 2023: Choices Have Consequences: Public Pension Investments in Alternative Assets
This sounds like a great way to wind up in court and lose even more money.
Excellent analysis. I'm familiar with these mechanics. So important to have discipline and realism around these assumptions. The difference between 5.9% and 8% assumed investment returns is huge in terms of a plan's funded profile.